Macroscope | Private sector funding needed to fill infrastructure investment gap

Years of violent conflict and neglect have devastated Iraq’s power infrastructure. Chronic electricity shortages trigger blackouts, choke economic growth and make everyday life a test for millions of Iraqis and the country’s swelling refugee population. Iraq needs a massive amount of investment to rebuild its energy sector.

The challenge is dramatic, but it’s one that most developing countries face at some level. Public resources aren’t abundant enough to close a yawning infrastructure investment gap. Emerging markets need more than US$1 trillion annually – and private investors are reluctant to step forward.

In Iraq, companies like Mass Global Energy Sulimaniya (MGES) are beginning to show that the private sector can have an impact. Supported by IFC, the company is boosting the capacity of a power plant in Kurdistan that will bring power to 3 million people. It is also building a new plant that will supply half of Baghdad’s electricity needs.

Investors, governments and development institutions need new ways to link private funds – especially the more than US$70 trillion held by pension funds and insurance companies – with infrastructure investments that can make a difference. Like MGES. Currently, large institutional investors allocate less than 1 per cent of their assets to infrastructure debt. That can – and must – change.

This week Eastspring Investments, the Asian asset management business of Prudential, agreed to channel more than US$500 million through a new programme that mobilises funds from institutional investors for much-needed infrastructure projects in emerging markets. The programme, MCPP Infrastructure, allows insurance companies to participate in IFC’s future portfolio of infrastructure loans. It is on track to raise US$5 billion by 2021.

The concept has proven successful and already yielded results for public institutions. The original MCPP platform, launched in 2013 with China’s State Administration for Foreign Exchange (SAFE) as the anchor investor, established a structure that could be replicated with other institutional investors. Since then, the entire MCPP programme pledge has been fully allocated and a total of US$1.84 billion has been committed in 53 projects.